Fireside Chat with Facebook Co-founder

Good afternoon everyone, thanks for joining us here today. We're going to try to keep this interactive and save some time for Q&A at the end, so we hope that there'll be some questions. But to start off, I just wanted to say how honored Eduardo and I are to be here at the MAS FinTech Festival. It's been a wonderful few days here and we're really excited to spend the next 25 to 30 minutes chatting a little bit about our views on FinTech and hopefully getting some questions from everyone here. Just as way of introduction, I wanted to introduce my co-founder first. Eduardo is originally from Brazil, he's born and raised in São Paulo. He then went to the U.S. for high school, later attended Harvard where he was involved in a number of entrepreneurial activities, eventually resulting in co-founding Facebook. And since that time he has been investing and backing lots of great entrepreneurs and has now been here in Singapore, so he's a local for nearly a decade now. Time flies. And Raj, let me introduce you briefly. My co-founder Raj, he's a fast learner. When he was 12 he was programming and I think he always wanted to be a less social person, someone that would be termed as a geek. So he started, was born in India, moved to the U.S., ended up being part of a financial services startup that survived miraculously the dot-com bubble. He eventually moved into the corporate world by working through consulting and eventually on the investment side through Bain Capital, both on the U.S. side, and he helped be part of the founding team of the Bain Capital Asia Group. And Raj and I have had the pleasure of working together for many years now, starting to invest into technology companies while he's also been concurrently serving as an adviser to the Boston Consulting Group.

Right, so thanks for that. Thanks for calling me a geek in front of a small crowd. It is my pleasure. Yeah, I appreciate that. Let me start by asking, what are you doing here at the MAS FinTech Festival? You co-founded a social media company, Facebook. What excites you about FinTech and why are you interested in FinTech at all?

You know, the other thing I'd say that's really interesting about the financial services industry is just how many other industries it touches. Because fundamentally a lot of what happens in payments and lending and many of these other spaces are a really important part of growing other industries. So if you look at something like payments, I think many of us here take for granted that the payments checkout system when you're transacting on an e-commerce website. And we're big believers, I think Jack Dorsey said it, that some of the best new technologies are ones that people don't even notice. And when these payment systems work well, I think very few of us even notice how important they are. You look at spaces like lending, lending grows the whole pie. Without lending, a lot of people wouldn't be able to afford cars. You look at personal financial management and it really drives home ownership, and without it, it would be difficult to own a home. And then finally, you look at health insurance, which is fundamentally tied into wellness and the healthcare industry. And so FinTech and financial services and what we're all here today to talk about is well beyond just the financial services industry. And it's part of the reason why we're big believers in the evolution of FinTech. I early in my career I used to lead product at a FinTech startup that our main innovation back in the late 90s was that you didn't have to send a fax after you made a payment. Probably most people here aren't old enough to remember that, but that's what you had to do in the 90s. After you made a payment online, you actually had to send a fax with your signature. And of course in 2003 that was replaced with digital signatures which became part of the law in the U.S. and many other places. But it's really an industry that touches and impacts so many other industries and I think it's important to keep that in mind. In some ways, it's the picks and shovels of multiple other industries. It won't exist, it won't be the same without a robust financial services back there.

So Eduardo, can you walk through from your view sort of what the hottest trends have been in financial services lately and what you think the next big thing will be?

Absolutely. And so it's a space where you really see a lot of the innovation coming from emerging markets and not from typical places like Silicon Valley. So that's one that I think is a really big trend that's here to stay. The second one is just the transformation of large financial institutions. I mean, many of these institutions over the past decade have added a tremendous number of people. And you look at where they've added the people, as an example, one of these spaces is KYC/AML. They're now armies of people who are working on KYC/AML. And when you get this wrong, we've all seen the headlines with banks that really got this wrong, the penalties are huge. It can actually drive you out of business if you don't do it the right way, which is why banks have so many people who do it. And generally they get it wrong quite a bit where they flag a lot of people and a lot of accounts and they have to go back and do all this work to verify whether it's a legitimate transaction. And we think that's an example of a space where increasingly looking at how artificial intelligence can help do that better and faster. And I think generally this drive toward increased efficiency, cutting cost and serving customers better, the only way to do that is through technology and innovation. And it's been great to see many banks, including some of the banks here in the region, that have really been some of the most creative financial institutions that we've seen. So I think those two trends are two trends that we're increasingly investing behind. The last one that I'll point out is just a threat to the financial services institutions as more and more non-bank institutions enter the space. Increasingly we see telcos and other companies that are getting into payments, that are getting into areas like lending. And that's because of the data that they have on individual consumers and the fact that while not everyone wants to be a bank, people want to do certain parts of the financial services industry. And I think that'll be an increasing trend that will continue to impact the whole industry. But it's a really exciting time to be in FinTech. There's been a little bit of a pullback in early-stage FinTech, but overall you see that it continues to grow year on year. So I don't know if you have anything else to add on that.

Yeah, and as you were saying, it's an industry that of course through my study you can tell that hasn't innovated too much probably in the last 100 years or so until the past five years. If you look back and think back to the modern era, the beginning of the modern era of insurance with Lloyd's of London, typically arising out of this need to insure the loss of property starting in the shipping industry, there hasn't been that much change from that initial model until recently. And I think if you think about the categories where innovation is happening a lot quicker today, I think the first one is around customer acquisition. How can I as an insurance provider get to my end customers quicker? And I think generally innovation in this space happens in industries where the intermediary cost, in this case would be brokers, is incredibly high. So generally you always look for a customer acquisition disruption. And how it's evolved in the early days has been around marketplaces. But we've seen even companies like some in our own portfolio, CXA, that is local here out of Singapore but has expanded across the region including to China, that they're partnering with both banks and insurance providers to develop a tech-enabled platform that enables the sale of group insurance and then a direct touch point to the end consumers under that employer. And that enables the upsell of individual insurance products which happens to be in many cases more profitable. But more importantly, from a data layer perspective, as you start engaging with the end consumer in a digital way, you could start thinking about concepts of wellness. Can you actually reduce the rise of healthcare costs? So there's a broader, beyond customer acquisition enablement, these types of models can enable also retention improvement of the model overall. The other area outside of customer acquisition is around new product categories. Some of them is by the necessity of the fast-changing world. As an example, you had companies like Metromile a while back that started innovating in this space by providing insurance by the mile. Or you have some local players in India, I think by the name of Acko, that are providing riders the ability to insure themselves on a time basis and rides in Ola and Uber and others. Meaning this is a unique movement to new products. And imagine as autonomy comes into the transportation space, how the model of insurance will radically transform when we're no longer driving. So I think there's a lot of excitement in this idea of new product categories. And also importantly, back to the concept of transformation of industries, this idea of moving internal processes to the new era. I think we were speaking to a few insurance providers that would have tens of thousands of employees that were simply being used for paper claim management. And I think that is something that in the very near future will be something of the past. Where thinking about what you call the truth discovery state, how can you get to the information of what is true quicker, you would see insurance providers today leveraging drone networks, satellite images, and a bunch of different tool sets to get data in real time and enable a faster, more nimble claims process as an example. But at the end of the day, I think one of the biggest areas of innovation will be to come back to the core of what insurance really is about, which is peace of mind. I don't know how many of us think of our insurance providers today or our insurance relationships as providing peace of mind. But if it's not all of you, I do think that the industry is and will evolve in that direction and technology will get them deeper and deeper in providing that as a service. So it's an incredibly exciting large industry with limited innovation in the past that we like to look at today.

I want to switch gears for a moment and ask you a little bit about the innovation model. I live in California, in Silicon Valley. Fundamentally what a lot of us talk about is disruption, that it's all about how can a small startup grow and really kind of take out the market leaders. And a lot of what you've been talking about, a lot of what we've been investing behind, has been more about transformation and partnerships and this idea of partnerships between these large market leaders and these small startups. Why is that important and how do those two kinds of entities even work together?

Yeah, I mean just to add on to that, I was an investor about a decade ago in one of the first digital-only banks. And to your point, Eduardo, it took us a couple years to get to about 300,000 customers. We eventually sold it. And you look now ten years in and what you're seeing is that many of these technology companies just by partnering with one small part of a bank, they're going from 300,000 customers to three, four million customers. And the reason that's really important is a lot of FinTech today is about data and algorithms. And if you're in a space like personal financial management, being the company that has more customers, being able to refine your algorithms is a big part of winning. And that's why we encourage the companies we invest in to be open to partnerships, to not try to go it alone. And we're big believers in that approach. And it's part of the reason why as a venture capital fund known as B Capital Group that we run today, we decided to partner with the Boston Consulting Group, a phenomenal institution that understands the corporate world in a very deep way that enables us to drive a real bridge, a sustainable bridge between what's happening in innovation centers and the corporate world.

Great. Now that we've given our required plug for our partners at the Boston Consulting, they are great. Should we open it up to Q&A?

Okay, great. Do we have time to do Q&A? Yes, yes. One or two questions, I'm sure it's fine. Okay, yeah, great. So guys, you're going to do Q&A. They have a question for the gentlemen, just raise your hand and we'll come over with a microphone. See a question over here. We have one right in front and then the second hand please. And they will come to you very quickly. Second hand also in front, okay, got it.

Okay, hi. My name is Desmond and thank you very much for being with us here today. I've both been an entrepreneur, I've been in banking as well. My question to you is, you guys are in finance, how has technology transformed your own business and can you share some of that please?

It's a great question. Listen, and we're always talking about how do we as a technology investment firm use technology more and use it better. And frankly, I think we still have a long way to go. Just as a simple part, a key part of our business is building relationships with people over a long period of time. And to do that, we definitely leverage technology today more than ever before. One thing which we're a big believer in is as we meet people, as we meet people who are entrepreneurs like yourself that we want to invest in, lines and not dots. And what that means for us is that we want to see you and we want to see your company over a period of time. We're high-conviction investors. When we invest, we like to take a big position, sit on the board, and to get to that level of conviction generally takes us some period of time. So about a year ago, we started piloting a new technology, a CRM technology that came out of Silicon Valley. A few other VCs like us have started to use and it's really been, I'm a bit negative on most CRM systems. I think most people at the firm know that I say that, they never quite work out. This has really been a phenomenal system. When we meet people, we're able to keep track of them, we're able to follow up, and when we see you again, we could be sharp and say that last time we saw you six months ago you were doing these three things, we'd love to get an update on how they're going. And so it's just helped us in terms of building better, longer-term relationships, something which is really important for us at B Capital. So part of it overall with technology for us is about the concept of capturing every data point imaginable and keeping that information in an agile way that enables you to make interesting decisions. So as an example of how technology has been used today, sometimes we meet very early-stage startups, we end up not investing, we're tracking them. Sometimes it doesn't work out, but some of those people are of incredible strength to be recruited by some of our existing portfolio companies. So by tracking everything, we can not only track companies and ideas that are investable, but in some cases even enable and/or support our companies in recruiting that way. So we live the philosophy of tracking all your data but also making sure that you don't have infinite data with no use for it and making very agile plugs. And I think it's an industry where some people have even piloted this idea of investing without ever meeting anyone, basically leveraging models, algorithms to choose what might be the right type of investment. We think we're far from that being truly scalable, but I think this idea of venture capitalists being cyborgs and leveraging the technology that they invest in in their own business is incredibly important. But it being fully displaced by technology, I think is a bit further away, especially because of the importance of people in investment decisions and in the success of companies.

Thank you. Okay, can we have the second question please? I think we have one question here. So I'm going to pass my microphone over to this lady.

Hi. To your mind, what is the willingness of large banks to collaborate with young FinTechs?

Great. Thank you very much everyone. We really appreciate your time today.